A Vermont legislative committee says in a draft report that the state should add early intervention services for parolees with mental illness, substance abuse or other problems to help them stay out of trouble.

The report says the services should be considered a priority over the addition of any new residential facilities for this group of parolees.

The special committee was created last spring after Human Services Secretary Douglas Racine sounded an alarm about the ballooning costs for services for people coming out of prison in need of intensive services but not eligible for Medicaid.

Twenty-two convicts labeled “seriously functionally impaired” finished their sentences and were released, although they were considered enough of a threat that they required extra supervision to ensure they didn’t re-offend. At the same time, they could not get Medicaid funding.

“It hit me two years ago,” Racine said in an interview Friday, recalling his review of post-release coverage for two people. “On my desk were two contracts. One was for $700,000; the other was for $800,000. I said, ‘We have a problem. Houston, we have a problem.’”

Because plans for responding to the needs of impaired parolees were never written into law or budgeted for, Human Services had to ask for a special budget adjustment last winter of $2.8 million to manage its costs, said Monica Hutt, the agency’s chief of policy and planning.

In February, Racine also announced a plan to bar the release of seriously functionally impaired inmates after serving their minimum sentences unless they were eligible for Medicaid funding. In addition, he called for new programming for the 22 parolees by the end of fiscal 2014 — next June 30.

His announcement was partly intended to get lawmakers’ attention. Subsequently, the Legislature created the special committee, formally called the Committee on Providing Community Supports for Persons with Serious Functional Impairments.

The committee was charged with studying several issues, including whether a new “secure residential facility” should be built to house parolees who had mental health or substance abuse issues.

The draft report urges shying away from new construction and focusing, instead, on efforts to help parolees stay out of trouble with the law.

“Until the State provides more comprehensive services at the front end, the Committee believes that it is premature to make a decision as to the need for secure residential recovery facilities to serve members of the designated population,” the draft report says.

The committee also recommends changes in state law to make Vermont’s regional mental health centers eligible for funding for “re-entry planning” for inmates who are still incarcerated but preparing for release.

Racine said some successful models for early intervention already exist, and pointed to programs in Chittenden County, Vermont’s most populous region, that try to steer people charged with drug offenses toward treatment, rather than jail.

“The bottom line is finding out how we can work most effectively with individuals who have engaged in criminal behavior to ensure they don’t re-offend,” he said.